Although Massachusetts and 22 other states have legalized medical marijuana, a conflict between state and federal law often forces dispensaries to operate outside of the banking system.

“It’s unfortunate that this kind of business, although it helps a lot of people, is still viewed by federal banking institutions as a Schedule 1 substance and we’re all pretty much viewed as drug dealers,” said John Greene, CEO of the Greeneway Wellness Foundation. “It’s been really frustrating at times.”

Since banks are regulated by the federal government and are FDIC-insured, many financial institutions are reluctant to provide financial services to medical marijuana businesses.

“At Bank of America, as a federally regulated financial institution, we abide by federal law and do not bank marijuana-related businesses,” bank spokesman Mark Pipitone said.

While many states have enacted medical marijuana laws, the drug remains illegal at the federal level.

“That is the issue,” said Brian Thompson, president of Worcester-based Commerce Bank & Trust Company. “Consequently, our policy is we will not open accounts for medical marijuana dispensaries given the present status of the federal regulations. It is against the law federally, and we are governed by the federal government. Our business is one of compliance, not only with regulatory authorities, but also with federal and state laws. At some point in the future, it may change, and if it does, we will reconsider.”

Greeneway Wellness was provisionally approved for a medical marijuana dispensary in Cambridge and an indoor cultivation center in Taunton. The state Department of Public Health, however, sent Greene a letter last month rejecting his application.

In the letter, the DPH raised concerns that Greene abruptly withdrew $1.3 million from the foundation’s bank accounts the day after submitting his application to the state and returned the funds to its investors. Greene said he returned the money to the investors, who signed custodianship agreements, because his bank accounts were about to be shut down.

“We’re not going to put funds into an account at risk of seizure or being closed down,” said Greene, who is working to secure a new bank account and hopes to re-apply for a dispensary license.

The federal Treasury Department in February issued a set of guidelines for banks to do business with licensed marijuana sellers, requiring them to file reports stating that a dispensary is complying with local laws. In a separate action, the Department of Justice announced it would instruct U.S. attorneys to not pursue cases against banks that do business with medical marijuana companies.

Century Bank of Medford is reportedly one of the few Massachusetts banks that has been willing to do business with medical marijuana companies, though a bank spokeswoman did not return calls for comment.

Page 2 of 3 - Many bankers say that without a statutory change, which would require an act of Congress, the risk of running afoul of federal law is still too great.

“Don’t tell us we can do things that are illegal and they’re not going to prosecute us,” Thompson said.

The Massachusetts Bankers Association has periodically discussed the matter with its members.

“Those pronouncements are nice to have, but none of it is statutory, and it can be changed,” said Jon Skarin, senior vice president of the Massachusetts Bankers Association. “There could be a different administration, a different attorney general, a different regulator who decides that’s not what they want to do. There are pretty substantial risks.”

Bridgewater Savings Bank president James Lively said his bank is steering clear of medical marijuana companies for the time being. The directives from the Obama administration don’t change the statute and create more of an administrative and regulatory burden for banks, he said.

“Should the law change, we would take it on a case-by-case basis,” Lively said. “I think bankers themselves would like to have this thing cleared up, because there are probably strong operators out there who would operate a good, clean business.”

Attorney Valerio Romano, who founded Massachusetts Marijuana Compliance as part of his Boston-based VGR Law Firm, said a number of medical marijuana applicants saw banks close their accounts after the Treasury Department issued its Feb. 14 memo.

“The memo had the opposite effect of what, on its face, it was supposed to have,” he said.

Taylor West, deputy director of the Denver-based National Cannabis Industry Association, said many of the organization’s members operate a completely cash-based business because they are unable to get business checking accounts. Having such large amounts of cash on hand has created serious security concerns, she said.

“They pay their employees in cash, they pay their tax bills in cash, they pay their utilities in cash,” she said.

Several dispensary applicants failed to return phone calls or declined to speak on the banking issue.

“We’ve been trying very hard to engage banking institutions but have found them reticent to provide us with banking services at this time,” said a representative of one of the 11 applicants that received provisional approval last month and has advanced to the next stage.

The applicant’s representative spoke on the condition of anonymity, fearful that speaking out could jeopardize the pending application or the firm’s ability to secure banking services.

“It’s ironic because a lack of banking services in this industry could hinder the safe and effective provision of this important medicine for the patients of Massachusetts who need it,” he said.

On Wednesday, the U.S. House voted 236-186 to reject an attempt to block the Treasury Department from implementing the guidance it issued to banks in February. While the House voted to prevent the Treasury Department from penalizing banks that serve state-authorized marijuana businesses, the action doesn’t change the federal classification of marijuana.

A separate House bill that would protect banks in similar situations from federal prosecution was sent to a legislative committee last year and has yet to be approved.

Without the federal government changing the classification of marijuana, most bankers are still hesitant to do business with the burgeoning industry.

“If we could bank a legal, medicinal pharmaceutical enterprise, we would, but the laws are in conflict,” said Middlesex Savings Bank Chief Operating Officer Brian Lanigan. “I don’t think anyone wants to be the test case and it’s unfortunate, because it’s legal here in Massachusetts.”

Gerry Tuoti is the Regional Newsbank Editor for GateHouse Media New England. Email him at gtuoti@wickedlocal.com or call him at 508-967-3137.